What is the turnover limit for GST composition scheme in 2026?

The turnover limit for the GST composition scheme is Rs 1.5 crore aggregate turnover in the preceding financial year for manufacturers and traders. For special category states like Northeastern states, Himachal Pradesh, Uttarakhand, and Jammu and Kashmir, the limit is Rs 75 lakh. For service providers opting under Section 10(2A), the limit is Rs 50 lakh. Aggregate turnover includes all taxable supplies, exempt supplies, exports, and inter-state supplies from all registrations under the same PAN across India.

Can composition scheme dealers claim input tax credit?

No, dealers registered under the composition scheme cannot claim input tax credit on any purchases. This is one of the biggest trade-offs of the scheme. All GST paid on raw materials, services, and capital goods becomes a cost to the business. For businesses with high input costs, this can make the composition scheme more expensive than regular registration despite the lower tax rate. Calculate both scenarios before deciding — if your GST on purchases exceeds your composition tax savings, regular registration with ITC is the better option.

Can I sell on Amazon or Flipkart under composition scheme?

No. Section 10(2)(d) of the CGST Act explicitly prohibits composition scheme dealers from making supplies through e-commerce operators. This means you cannot sell on Amazon, Flipkart, Meesho, or any other marketplace platform. If you want to sell on e-commerce platforms, you must register as a regular GST taxpayer. You can sell through your own website though — Shopify stores where you collect payment directly do not fall under this restriction because you are the operator, not a third-party marketplace.

What is the difference between a Bill of Supply and a Tax Invoice?

A Bill of Supply is issued by composition dealers and for exempt supplies. It does not include GST amount because the composition dealer pays tax on turnover, not on individual transactions. A Tax Invoice is issued by regular GST dealers and includes the GST breakup — CGST plus SGST or IGST with amounts. The customer can claim input tax credit only on a Tax Invoice, not on a Bill of Supply. This means B2B customers prefer buying from regular dealers because they lose ITC on purchases from composition dealers.

Can I switch from composition to regular GST registration?

Yes, you can switch from composition to regular registration at any time during the year. File GST CMP-04 on the portal to intimate withdrawal. Within 30 days, file GST ITC-01 declaring the stock held on the date of switch — this allows you to claim ITC on that stock. From the effective date of switch, start issuing tax invoices with all mandatory GST fields, file GSTR-1 and GSTR-3B monthly, and maintain detailed records for ITC claims. The reverse switch — regular to composition — can only happen at the start of a financial year by filing CMP-02 before March 31.

What is the composition rate for restaurants under GST?

Restaurants opting for the composition scheme pay 5 percent of turnover as GST (2.5% CGST plus 2.5% SGST). This applies to restaurants that do not serve alcohol. Under the regular scheme, restaurants without AC in non-star hotels pay 5% GST with no ITC, while AC restaurants and hotels pay 5% without ITC or 18% with ITC depending on their choice. For small restaurants with turnover under Rs 1.5 crore and minimal input costs, the composition scheme at 5% with quarterly filing is the simplest compliance option.

Do composition dealers need to file GSTR-1?

No, composition scheme dealers do not file GSTR-1. Since they issue Bills of Supply instead of tax invoices, there is no invoice-level reporting requirement. Composition dealers file CMP-08 quarterly — a simple statement showing total turnover and tax payable. They also file GSTR-4 annually by April 30. This is significantly less paperwork compared to regular dealers who must file GSTR-1 by the 11th and GSTR-3B by the 20th every month. The reduced filing burden is one of the primary attractions of the composition scheme for small businesses.

GST Returns & Filing

GST Composition Scheme 2026: Eligibility, Rates, Benefits, and Limitations

The composition scheme lets small businesses pay a flat low GST rate without detailed invoicing. But it comes with restrictions on ITC, inter-state sales, and e-commerce. Here is the complete guide.

Himanshu23 March 2026 · 5 min read · updated 6 September 2026

Street vendor selling bananas in a vibrant market stall with traditional elements.

On this page

Key takeaways

Composition is open to manufacturers and traders under Rs 1.5 crore turnover (Rs 75 lakh in special states) and service providers under Rs 50 lakh.
Rates are flat: 1% for manufacturers and traders, 5% for restaurants, 6% for services, paid quarterly via CMP-08 with GSTR-4 annually.
Composition dealers cannot claim ITC, issue tax invoices, sell inter-state or sell through e-commerce marketplaces.
Switch to regular any time with CMP-04 and ITC-01; switching back to composition only happens at year start via CMP-02.

What is the GST Composition Scheme?

The GST composition scheme under Section 10 of the CGST Act is a simplified tax payment option for small businesses. Instead of charging GST on every invoice at the applicable rate and filing detailed monthly returns, composition dealers pay a flat percentage of their turnover as tax — with significantly less paperwork.

The scheme was designed for small manufacturers, traders, and restaurants whose turnover is below Rs 1.5 crore (Rs 75 lakh for special category states). Service providers with turnover up to Rs 50 lakh can also opt in under a special provision added later.

The trade-off is significant: you cannot charge GST to customers (no tax invoices), you cannot claim input tax credit on purchases, you cannot make inter-state sales, and you cannot sell through e-commerce platforms. For businesses that sell locally to end consumers and have low input costs, the scheme saves time and money. For businesses that sell B2B or across states, it is restrictive.

This guide covers eligibility criteria, composition rates after GST 2.0, how to opt in, filing requirements, and when regular registration is a better choice. Use our GST calculator to compare your tax under composition vs regular scheme.

Composition Scheme Tax Rates 2026

Flat rates based on business type — much simpler than regular GST

Business Type	Composition Rate
Manufacturers (goods)	1% of turnover (0.5% CGST + 0.5% SGST)
Traders (goods)	1% of turnover (0.5% CGST + 0.5% SGST)
Restaurants (serving food — no alcohol)	5% of turnover (2.5% CGST + 2.5% SGST)
Service providers (Section 10(2A))	6% of turnover (3% CGST + 3% SGST)
Turnover limit — goods	Up to Rs 1.5 crore (Rs 75 lakh for special states)
Turnover limit — services	Up to Rs 50 lakh
Filing frequency	Quarterly (CMP-08) + Annual (GSTR-4)
Tax invoice allowed?	No — must issue Bill of Supply

Who Can Opt for Composition Scheme?

You must meet ALL these conditions

Aggregate turnover in the previous financial year did not exceed Rs 1.5 crore (Rs 75 lakh for special category states)
For service providers under Section 10(2A): turnover did not exceed Rs 50 lakh
You do NOT make inter-state outward supplies — all sales must be within your state
You do NOT supply through e-commerce operators — no selling on Amazon, Flipkart, Meesho, etc.
You do NOT supply goods that are not taxable under GST (like alcohol for human consumption)
You are NOT a manufacturer of notified goods (ice cream, pan masala, tobacco — excluded from composition)
You are NOT a casual taxable person or non-resident taxable person
You are NOT an Input Service Distributor
You display 'Composition Taxable Person' on every notice or signboard at your place of business
You mention 'Composition Taxable Person, Not Eligible to Collect Tax on Supplies' on every Bill of Supply

Benefits and Limitations of Composition Scheme

Benefits

Lower tax rate — 1% for manufacturers/traders vs 5-18% under regular scheme
Less paperwork — quarterly CMP-08 instead of monthly GSTR-1 and GSTR-3B
No detailed invoicing — issue simple Bill of Supply instead of tax invoices with HSN breakdowns
Less compliance burden — no GSTR-1, no GSTR-2B reconciliation, no ITC tracking
Cash flow advantage — pay tax quarterly instead of monthly
Simpler record keeping — no need to maintain detailed purchase registers for ITC

Limitations

Cannot claim input tax credit on any purchases — effectively increases your cost of goods
Cannot make inter-state sales — only intra-state supply allowed
Cannot sell through e-commerce platforms like Amazon, Flipkart, or Shopify marketplaces
Cannot issue tax invoices — B2B customers cannot claim ITC on purchases from you
Must mention 'Composition Taxable Person' on all bills — some customers perceive this negatively
Cannot supply notified goods like ice cream, pan masala, or tobacco products

Regular Registration vs Composition Scheme: Which is Better?

Choose composition if: You sell locally to end consumers (B2C), your input costs are low relative to sales, you want minimal paperwork, and you do not sell online or across state borders. Typical businesses: local kirana stores, small restaurants, neighbourhood bakeries, and small manufacturers selling within the district.

Choose regular registration if: You sell B2B (your customers need tax invoices for ITC), you make inter-state sales, you sell on e-commerce platforms, your input costs are high (ITC saves you money), or you plan to grow beyond Rs 1.5 crore turnover. Typical businesses: wholesalers, exporters, e-commerce sellers, service companies, and growing businesses.

The ITC trap

Many small businesses choose composition for the lower rate without considering the ITC loss. If you buy goods with 18% GST and sell at 1% composition rate, you lose the 18% ITC on purchases. On Rs 10 lakh annual purchases, that is Rs 1.8 lakh in lost credits. Compare this with the tax saved: if your turnover is Rs 15 lakh, composition tax is Rs 15,000 while regular GST at 18% with full ITC might result in lower net tax. Use our GST calculator to model both scenarios.

If you opt for regular registration, myBillPlease makes compliance easy — automatic tax invoices, HSN codes, ITC tracking, and auto-generated GSTR-1 and GSTR-3B reports. The free plan covers everything a small business needs.

Filing Requirements Under Composition Scheme

Composition dealers have significantly less filing compared to regular taxpayers:

CMP-08 (Quarterly): A simple challan-cum-statement filed every quarter. It contains total turnover, tax payable, and tax paid. Due by the 18th of the month following the quarter. This is much simpler than GSTR-1 and GSTR-3B.

GSTR-4 (Annual): An annual return filed by April 30 following the financial year. It summarises your entire year — total turnover, tax paid through CMP-08, details of inward supplies, and tax liability reconciliation.

No GSTR-1: Composition dealers do not file GSTR-1. Since they issue Bills of Supply (not tax invoices), there is no invoice-level reporting.

No GSTR-3B: The quarterly CMP-08 replaces GSTR-3B for composition dealers.

Late fees: Late filing of CMP-08 attracts Rs 50 per day (Rs 25 CGST + Rs 25 SGST) up to Rs 10,000. Late filing of GSTR-4 attracts Rs 100 per day (Rs 50 CGST + Rs 50 SGST) up to Rs 5,000.

How to Opt In or Out of Composition Scheme

Opting in: Existing regular taxpayers can switch to composition at the beginning of any financial year. File GST CMP-02 on the GST portal before March 31 of the preceding year. New businesses can opt for composition during registration itself by selecting the option in the registration form.

Opting out: File GST ITC-01 within 30 days of opting out to claim ITC on stock held on the date of switching to regular. This recovers the ITC you missed during the composition period on unsold stock. File GST CMP-04 to intimate the portal about withdrawal from the scheme.

Automatic exit: If your turnover crosses Rs 1.5 crore during a financial year, or you make an inter-state supply, or you start selling on e-commerce — you automatically cease to be a composition dealer and must register as a regular taxpayer from that date. Start issuing proper tax invoices with all mandatory fields and file GSTR-1 and GSTR-3B from that month onwards.

Frequently asked questions

What is the turnover limit for GST composition scheme in 2026?: The turnover limit for the GST composition scheme is Rs 1.5 crore aggregate turnover in the preceding financial year for manufacturers and traders. For special category states like Northeastern states, Himachal Pradesh, Uttarakhand, and Jammu and Kashmir, the limit is Rs 75 lakh. For service providers opting under Section 10(2A), the limit is Rs 50 lakh. Aggregate turnover includes all taxable supplies, exempt supplies, exports, and inter-state supplies from all registrations under the same PAN across India.
Can composition scheme dealers claim input tax credit?: No, dealers registered under the composition scheme cannot claim input tax credit on any purchases. This is one of the biggest trade-offs of the scheme. All GST paid on raw materials, services, and capital goods becomes a cost to the business. For businesses with high input costs, this can make the composition scheme more expensive than regular registration despite the lower tax rate. Calculate both scenarios before deciding — if your GST on purchases exceeds your composition tax savings, regular registration with ITC is the better option.
Can I sell on Amazon or Flipkart under composition scheme?: No. Section 10(2)(d) of the CGST Act explicitly prohibits composition scheme dealers from making supplies through e-commerce operators. This means you cannot sell on Amazon, Flipkart, Meesho, or any other marketplace platform. If you want to sell on e-commerce platforms, you must register as a regular GST taxpayer. You can sell through your own website though — Shopify stores where you collect payment directly do not fall under this restriction because you are the operator, not a third-party marketplace.
What is the difference between a Bill of Supply and a Tax Invoice?: A Bill of Supply is issued by composition dealers and for exempt supplies. It does not include GST amount because the composition dealer pays tax on turnover, not on individual transactions. A Tax Invoice is issued by regular GST dealers and includes the GST breakup — CGST plus SGST or IGST with amounts. The customer can claim input tax credit only on a Tax Invoice, not on a Bill of Supply. This means B2B customers prefer buying from regular dealers because they lose ITC on purchases from composition dealers.
Can I switch from composition to regular GST registration?: Yes, you can switch from composition to regular registration at any time during the year. File GST CMP-04 on the portal to intimate withdrawal. Within 30 days, file GST ITC-01 declaring the stock held on the date of switch — this allows you to claim ITC on that stock. From the effective date of switch, start issuing tax invoices with all mandatory GST fields, file GSTR-1 and GSTR-3B monthly, and maintain detailed records for ITC claims. The reverse switch — regular to composition — can only happen at the start of a financial year by filing CMP-02 before March 31.
What is the composition rate for restaurants under GST?: Restaurants opting for the composition scheme pay 5 percent of turnover as GST (2.5% CGST plus 2.5% SGST). This applies to restaurants that do not serve alcohol. Under the regular scheme, restaurants without AC in non-star hotels pay 5% GST with no ITC, while AC restaurants and hotels pay 5% without ITC or 18% with ITC depending on their choice. For small restaurants with turnover under Rs 1.5 crore and minimal input costs, the composition scheme at 5% with quarterly filing is the simplest compliance option.
Do composition dealers need to file GSTR-1?: No, composition scheme dealers do not file GSTR-1. Since they issue Bills of Supply instead of tax invoices, there is no invoice-level reporting requirement. Composition dealers file CMP-08 quarterly — a simple statement showing total turnover and tax payable. They also file GSTR-4 annually by April 30. This is significantly less paperwork compared to regular dealers who must file GSTR-1 by the 11th and GSTR-3B by the 20th every month. The reduced filing burden is one of the primary attractions of the composition scheme for small businesses.